2011 (11) TMI 417 - HC - Income Tax

Reopening - Time barred - Learned counsel appearing for the appellant submitted that in view of the provisions of Section 147, the order of assessment for the assessment years 1992-93, 1993-94, 1994-95 and 1995-96 is sought to be re-opened by issuing notice on 11.12.1996 after recording the satisfaction of the Assessing Officer - It is further submitted that the Assessing Officer has recorded his satisfaction before issuing notice based upon the material on record and it is not based upon the change of opinion as contended and therefore the same is also justified - Held that Assessing Officer to re-open the assessment and also from the material which is available on record, we are satisfied that there are sufficient grounds for the Assessing Officer to re-open the assessment for the above said assessment years Regarding time limitation - it is clear that the Assessing Officer having recorded reasonable opinion for reopening the assessment for the years 1992-1993 to 1995-1996 has issued notice on 11.12.1996 and wherefore, the said notice is issued is within four years in respect of all the assessment years 1992-1993 to 1995-1996 - The original records would show that there was no opportunity for cross-examining the said statements given by the said persons and the same was denied and therefore, the authorities below were not at all justified in relying open the said statements, which were not subjected to cross-examination to test the veracity of the statements given by them before the Assessing Officer and the entire finding of the Courts below is based upon the submission of the said parties and other material on record - Appeals are allowed in part

Summary

Issues:
1. Reopening of assessment based on change of opinion or sufficient grounds
2. Limitation period for reopening assessment
3. Allowability of commission paid to M/s Transhed Electronics Pvt. Limited as a business expense

Reopening of Assessment - Change of Opinion or Sufficient Grounds:
The High Court analyzed whether the reassessment was initiated based on a mere change of opinion or on sufficient grounds. The Court noted that the Assessing Officer issued the notice for reopening the assessment after recording satisfaction and found that there were adequate grounds for the reassessment. The Court determined that the reopening was not merely a change of opinion but was based on substantial grounds, ruling in favor of the Revenue.

Limitation Period for Reopening Assessment:
Regarding the limitation period for reopening the assessment, the Court observed that the notice for reassessment was issued within four years from the conclusion of the earliest assessment year. The Court rejected the argument that the period should be calculated from the date of further inquiry, emphasizing that the limitation period is counted from the date the notice was issued after the Assessing Officer's satisfaction. Consequently, the Court held that the reopening of the assessment was within the time limit and not barred by limitation, ruling in favor of the Revenue.

Allowability of Commission as Business Expense:
The Court addressed the issue of whether the commission paid to M/s Transhed Electronics Pvt. Limited should be considered a business expense. It was highlighted that the decisions of the lower authorities were based on statements of individuals without providing an opportunity for cross-examination. The Court found that the reliance on these statements without cross-examination was unjustified. Therefore, the Court set aside the previous findings and directed that the Assessing Officer should reevaluate whether the commission qualifies as a business expense after allowing the appellants to cross-examine the relevant individuals.

Conclusion:
In conclusion, the High Court partially allowed the appeals, upholding the reopening of the assessment within the limitation period. However, it directed a fresh assessment by the Assessing Officer to determine the allowability of the commission paid to M/s Transhed Electronics Pvt. Limited as a business expense, ensuring the appellants have the opportunity to present their contentions and cross-examine relevant individuals.